Labuan offshore banks post losses

Labuan offshore banks post losses

KUALA LUMPUR (Dow Jones): Offshore banks operating in
Malaysia's tax haven of Labuan island on the north coast of
Borneo posted a pretax loss of US$268.9 million for 1998,
swinging from a pretax profit of $120.3 million the year before.

It was the first loss incurred by the Labuan offshore banks
since the tax haven was established nine years ago.

A report by the financial center's chief regulator, made
available to Dow Jones Newswires Monday, states the loss was due
to higher non-performing loans among banking groups hurt by the
regional economic crisis.

Non-performing loans hit 11 percent of total loans at end
1988, compared to 1.1 percent in 1997, according to the Labuan
Offshore Financial Services Authority, or Lofsa.

It added that total loans outstanding declined by 13.3 percent
to $15.1 billion, compared to $17.5 billion in 1997.

Set up in 1990, the Malaysian government has spent nearly six
billion ringgit transforming this one-time sleepy backwater into
a regional financial hub.

To preserve its position as an offshore financial center,
Labuan is the only place in Malaysia where capital controls,
which the government imposed last September, don't apply. Here
foreigners are allowed to withdraw and invest funds without any
restrictions.

"The significant increase in non-performing loans reflected
the effects of the regional financial crisis on Labuan offshore
banks as the bulk of the loans exposures were to customers in the
countries in Asean," the report said referring to member nations
of the Association of Southeast Asian Nations.

There are currently 62 offshore banks operating in Labuan and
the Lofsa report says that total provisions for non-performing
loans made by those banks amounted to $921.7 million in 1998. As
a result of the higher non-performing loans, the ratio of loan
loss reserves to non-performing loans was 58.1 percent in 1998,
compared with 101.9 percent in 1997, the Lofsa report said.